Market Size, Division of Labor, and Firm Productivity

Thomas Chaney and Ralph Ossa

No 9069, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We generalize Krugman's (1979) 'new trade' model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.

Keywords: Division of labor; Firm productivity; Market size; Technology transfer (search for similar items in EconPapers)
JEL-codes: F10 F12 L22 L25 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-eff
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Market size, division of labor, and firm productivity (2013)
Working Paper: Market Size, Division of Labor, and Firm Productivity (2013)
Working Paper: Market Size, Division of Labor, and Firm Productivity (2013)
Working Paper: Market Size, Division of Labor, and Firm Productivity (2012)
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